U.S. Opening Bell: Global Rally Resumes On Earnings As Europe Stocks Hit Records

Key Events

Strong earnings beats last week have helped drive futures contracts on the Dow, S&P, NASDAQ and Russell 2000 higher in trading on Monday, by convincing investors that, uneven data notwithstanding, the economy will be OK. That positive sentiment also sent European shares to a new record. 

Oil recovered and yields rose.

Global Financial Affairs

Although the market narrative credits strong US corporate earnings for today's optimism, on Friday financial networks characterized the results as uninspired. We consider that a red flag and an illustration of how fickle investors can be.

December contracts on the S&P 500 Index advanced 0.3%, extending October's biggest monthly gain since November 2020.

European stocks advanced this morning, led by retail shares. The pan European STOXX 600 Index took a cue from the earlier Asian session. Except for Chinese shares, Asian markets were buoyant, tracking Wall Street's record gains on Friday.

Japan's Nikkei surged 2.6% after the Liberal Democratic Party, led by Prime Minister Fumio Kishida, beat election result expectations and maintained its outright majority. The outcome removes the uncertainty which was weighing on investors, as Japan had been at a policy impasse on dealing with its pandemic-battered economy. Kishida is keen to increase stimulus so his win boosted stocks but weighed on the yen.

The USD/JPY jumped, apparently blowing out a H&S top, potentially forcing traders to reverse positions, which could be the impetus for another rally for the pair.

China's Shanghai Composite slipped 0.1% as the world's second-largest economy is slowing due to power shortages, soaring commodity costs and pandemic curbs. However, stocks in Hong Kong, which are more exposed to foreign investing, took the brunt of the selloff. The Hang Seng slumped 0.9%, weighed down by the technology sector.

Despite underwhelming earnings from Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) whose results missed estimates, sparking fears of a lacklustre holiday season, three of the four major US benchmarks closed higher on Friday, buoyed by a string of recent records. This occurred against a backdrop of significant risks, including 30-year high inflation for the last 4 months, tightening monetary policy and China.

Yields on the 10-year Treasury note rose as investor confidence grew. The US dollar also rose, though it pared early gains.

The greenback is being squeezed between the demand of the long-term uptrend and the short-term supply.

Gold was the mirror image of the USD.

The yellow metal trimmed most of the day's losses but was still below its short-term uptrend channel. On the weekly chart, the precious metal has completed a H&S continuation pattern. The price may be signalling it ended a return-move and is ready to resume its underlying downtrend.

Bitcoin stalled, wavering in place after yesterday's 3.7% jump.

The digital token could be forming a H&S bottom.

Oil crept back up after a decline.

The price rallied on the outlook that OPEC+ might resist pressure to increase production at a faster pace at its meeting this week.

Up Ahead

• On Tuesday, the Reserve Bank of Australia releases its policy decision.
• The FOMC announces its rate decision and publishes a statement on Wednesday. 
• On Thursday, the Bank of England publishes its decision on interest rates and its bond-buying program

Market Moves

Stocks

• The FTSE 100 increased 0.4%
• The STOXX 600 rose 0.9%
• Futures on the S&P 500 rose 0.3%
• Futures on the NASDAQ 100 rose 0.4%
• Futures on the Dow Jones Industrial Average rose 0.3%
• The MSCI Asia Pacific Index rose 0.4%
• The MSCI Emerging Markets Index fell 0.4%

Currencies

• The British pound was little changed at $1.3676
• The Dollar Index rose 0.1%
• The euro rose 0.1% to $1.1571
• The Japanese yen fell 0.4% to 114.41 per dollar
• The offshore yuan was little changed at 6.4002 per dollar

Bonds

• Britain's 10-year yield increased two basis points to 1.05%
• The yield on 10-year Treasuries advanced two basis points to 1.57%
• Germany's 10-year yield was little changed at -0.11%

Commodities

• WTI crude oil jumped 1.2% to $83.78 a barrel
• Spot gold was little changed